What is the Social Security Tax Rate & Limit
Anyone with a job will see a Social Security tax added to their paychecks. This payroll tax amounts to 6.2% of whatever you earned. The money goes directly towards funding the Social Security program.
Self-employed individuals pay double this amount because they must cover both the employee and employer parts of the tax. However, half of this tax is deductible.
The Social Security Wage Base is the threshold on income. Anything you earn above this threshold isn’t eligible for Social Security tax. It rises nearly every year.
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What You Need to Know About the Social Security Tax Rate and Limit
If you earned more than $132,900 in 2019, you wouldn’t have to pay any tax on the income above this limit. The Social Security Wage Base means that you’ll only ever pay Social Security taxes on $132,900 and nothing else. You can’t pay more than $8,240 in taxes for Social Security in 2019.
The cutoff in 2018 was $128,400.
Be aware that this doesn’t apply to the 1.45% Medicare tax. You’ll have to pay Medicare taxes on every dollar you earn.
If you earn more than $200,000, or $250,000 as married couple but filing jointly, you’ll need to pay an Additional Medicare Tax, which brings the total percentage to 2.35%.
What You Need to Know About the Social Security Tax
The Social Security tax is a contribution to the overall Social Security system. This ensures that you’ll receive Social Security payments when you reach retirement age. As an employee, your employer will match what you contribute dollar for dollar.
The idea behind it is that you pay to support the retirees of today, and the next generation will subsequently fund your retirement. The philosophy behind it is to create a self-sustaining retirement plan.
On your paycheck you may see something called FICA. This stands for the Federal Insurance Contributions Act and this is the act that Medicare and Social Security is taxed under.
This is also why your Social Security payments are higher when you delay claiming your benefits. The longer you pay the tax the more you receive when the time comes for you to retire.
Working longer is also beneficial for retirees because it means vital extra years of income.
What are the Changes to Social Security?
The Social Security Administration (SSA) is responsible for managing the Social Security program. They have made a few changes to the way the system works.
The big change is that retirement benefits have increased by 2.8%, as a result of adjustments to the standard cost of living. Usually, this is judged by the Consumer Price Index (CPI).
The earning limits for retirement payments have also increased in 2019. This earning limit applies for people who receive Social Security benefits yet continue to work.
For anyone who hasn’t yet reached the full retirement age, the earning limit has been increased by $600 to $17,640 for 2019. If you earn more than this amount, you lose $1 in benefits for every $2 you earn.
The earning limit for those who have reached full retirement age has been increased to $46,920 for 2019. Take note that this limit only applies to any income you generate throughout the months before you officially reach full retirement age.
Exceed this limit and you lose $1 in benefits for every $3 you earn above the limit.
There’s no penalty for working and receiving Social Security benefits after you reach full retirement age.
It’s Simple to Understand
There are serious concerns regarding the depletion of the program’s funds. But Social Security is simple enough for the average person to understand.
You pay in throughout your working life and, in theory, you get benefits when you reach full retirement age.
The income limit for 2019 is $132,900, so anything you earn above this limit won’t be taxed for Social Security purposes.